The Advantages and Disadvantages of Franchising

Running your own business is a cornerstone of the American Dream. Those with a unique business idea and the right amount of drive and capital tend to build their own company from the ground up, while others prefer to enter the business arena by buying into a well-established franchise.

Why a Franchise?

The appeal of a franchise is understandable: it allows aspiring entrepreneurs to start a new business without incurring the same level of risk as a brand-new venture. Other advantages include:

  • The business is already established. There is very little ground for a neophyte businessperson to break. The brand, the operating traditions, and the product or service are already in place, along with brand-loyal customers. All that’s new is the location.
  • Key business relationships already exist. Most franchisors have existing relationships with suppliers, distributors, and marketing firms, all of which the new franchisee can benefit from.
  • A support system is in place. There’s a lot for a new business owner to learn, and mistakes can have grave consequences. Many franchisors, to preserve the integrity of their brand, prepare franchisees for success by training them on how to properly manage sales, purchasing, advertising, and more.
  • Easier financing. When you’re buying into a franchise, acquiring the necessary capital tends to be easier. An established brand and existing infrastructure make the venture less of a risk to investors.

Disadvantages of a Franchise

Setting up a franchise has its disadvantages too. They include:

  • Lack of freedom and flexibility. Franchisees have little to no control over how their new business is run. The rules governing its operation are clearly outlined in the franchise agreement.
  • Greater risk of reputational damage. If one franchisee does something to damage the brand’s reputation, everyone else who has bought into the same business could be tarred with the same brush and lose sales as a result.
  • Shared profits.  Franchisors expect their franchisees to remit a percentage of all profits in exchange for the privilege of representing their brand. This can pose a financial challenge during periods when sales are low.
  • Tied into certain partnerships. When you run a franchise, you are generally required to use the franchise supply network, which means that there is no option to work with cheaper suppliers to keep costs down.

 

 

Like all forms of business, running a franchise has its advantages and disadvantages. Each one needs to be considered, along with your own business goals before deciding if being a franchisee is right for you.

To learn more about the pros and cons of franchising, call Trembly Law today and schedule an appointment. We are committed to helping you maximize the assets and money you have worked so hard to accumulate, and will use our experience to help you make a business decision that is right for you.

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Written by Brett Trembly

Brett Trembly

In the South Florida legal community, Brett sits on the Board of the South Miami Kendall Bar Association, the Florida Bar 11th Circuit Grievance Committee, volunteers on the Florida Bar Young Lawyers Division Mentoring Program, the Dade-County Bar Associations Rainmakers Committee, and annually volunteers for Miami-Dade County’s Ethical Governance Day.